Ask Paul: How to push back when financial planners take over?
John: My wife and I have a self-managed super fund. We borrowed $414,000 for a property. We split the mortgage in half: $207,000 went into a variable rate and the other half into an offset account. We receive $2500 a month in rent and our mortgage is $1206pm and the other part is not costing anything as we have the full amount in the offset account, which covers it.
We both still work. I am 57 and my wife 54. I contribute $500 a fortnight to super and my company contributes $188 a fortnight. My wife contributes $200 a month and her employer contributes $650pm. All of this goes into our own fund.
We have a small mortgage of $4000 and our home is valued at $580,000 with no further debt. Should we pay the $207,000 off the offset account? This would leave us a balance in the other account of $193,000. By doing this we could pay off the debt in about 40 months. I would just be turning 60 then, and would put the maximum into super that the government allows us to do.
We have spoken to financial advisers and all they want to do is take our money and manage it. We have done the hard work by saving most of our working lives so this is not an option for us just yet. Your thoughts would be appreciated.
Paul: John, I'm a bit confused. You say you have half your investment loan, or $207,000, in an offset account and the same in a variable loan. You then describe your mortgage payments as being $1206 a month as you have the "full amount in the offset account". I must be missing something as I have no idea how you'd pay off $207,000 in an offset account that has a zero balance.
Anyway, this is not critical as the principle remains the same regardless of the numbers. I don't know your salaries, but as you near retirement, between your work super and your SMSF it makes sense to put in the maximum deductible amount as salary sacrifice.
After that, clearing debt before you retire also makes a lot of sense to me.
From what I can see, you are in an excellent position. I don't know your super balance but you make good contributions. You basically own your own home and can clear debt on the SMSF property in 40 months. This should leave you in excellent shape as you hit 60.
I am annoyed to hear advisers simply want to manage your money for you. There are fee-charging professionals - the Financial Planning Association should be able to direct you to one. I do think it would help to have all the facts on the table.
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